Low Productivity and Its Impact on Global Growth

September 01, 2016

Productivity is the change in output per hour worked and serves as a key indicator of real economic growth. Not surprisingly, it is one of the critical macroeconomic variables analyzed by the Fed when deciding whether or not to raise interest rates. Lower levels of productivity can result from economic policy and shocks, changing demographics, and slower gains from technological innovations.

This week’s chart shows the productivity changes of the three largest developed market currency blocks: the United States, Japan, and the Eurozone. The graph illustrates that all three are currently struggling to produce meaningful productivity gains. In the U.S., output per hour worked has now contracted for three consecutive quarters. Most of the U.S. contraction can be accounted for by lower energy prices, but the more important theme is the lower levels of productivity across the developed world and their likely contribution to stagnating global growth. If this trend continues, it will be serve as yet another headwind for stronger growth across the globe.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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